Public Interest Commenti to the National Economic Council on
The President’s Executive Order 13725
Steps to Increase Competition and Better Inform Consumers and
Workers to Support Continued Growth of the American Economy
The George Washington University Regulatory Studies Center
Sofie E. Miller, Daniel R. Pérez, Susan Dudley, & Brian Mannixii
May 12, 2016
The George Washington University Regulatory Studies Center works to improve regulatory
policy through research, education, and outreach. As part of its mission, the Center conducts
careful and independent analyses to assess regulatory proposals from the perspective of the
public interest, including impacts on consumer welfare.
This comment in response to President Obama’s Executive Order 13725 provides
recommendations to the National Economic Council on how agencies can reduce regulatory
barriers to competition and improve outcomes for American consumers. This comment does not
represent the views of any particular affected party or special interest, but is designed to evaluate
the effects that existing and forthcoming regulatory actions may have on overall consumer
welfare through the lens of enhancing competition and improving innovation.
i This comment reflects the views of the authors, and does not represent an official position of the GW Regulatory
Studies Center or the George Washington University. The Center’s policy on research integrity is available at
http://regulatorystudies.columbian.gwu.edu/policy-research-integrity. ii Sofie E. Miller is a Senior Policy Analyst, Daniel Pérez is a Policy Analyst, Susan Dudley is the Director, and
Brian Mannix is a Research Professor at the George Washington University Regulatory Studies Center.
The George Washington University Regulatory Studies Center
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Regulatory Reforms to Enhance Competition
Recommendations for Implementing Executive Order 13725
Sofie E. Miller, Daniel R. Pérez, Susan E. Dudley, & Brian Mannix1
Regulation & Competition
Since the formation of the U.S. federal regulatory system, regulations have had a significant
influence on marketplace competition. Regulations often seek to improve competition by
restraining monopolies; others tend to reduce competition by establishing one-size-fits-all
standards for consumer products or acting as nontariff barriers limiting competition from foreign
trade partners. Recognizing the importance of this relationship, on April 15th
President Barack
Obama signed an Executive Order instructing federal agencies to identify and address barriers to
competition. This Executive Order provides agencies with a valuable opportunity to reevaluate
existing rules that create barriers to competition.
According to EO 13725, promoting competitive markets can ensure that “consumers and
workers have access to the information needed to make informed choices.” The new Executive
Order encourages executive branch agencies to contribute to this goal by engaging in “pro-
competitive rulemaking and regulations, and by eliminating regulations that create barriers to or
limit competition.”2
The Council of Economic Advisors (CEA) recently published an Issue Brief discussing both the
benefits of competition and several indicators that suggest a consistent decline in the level of
competition within the U.S. economy.3 The Brief focuses on instances where government
agencies can intervene in the market to prevent anticompetitive behavior by firms (e.g., colluding
with rivals), but also mentions that agency interventions can be the source of reduced
competition. Competition is important for incentivizing long-term productivity growth and
1 This comment was originally published as a Regulatory Insight by the George Washington University Regulatory
Studies Center on May 11, 2016. https://regulatorystudies.columbian.gwu.edu/regulatory-reforms-enhance-
competition-recommendations-implementing-executive-order-13725 2 Executive Order 13725. “Steps to Increase Competition and Better Inform Consumers and Workers to Support
Continued Growth of the American Economy.” April 15, 2016. Available at: https://www.whitehouse.gov/the-
press-office/2016/04/15/executive-order-steps-increase-competition-and-better-inform-consumers 3 Council of Economic Advisers Issue Brief. “Benefits of Competition and Indications of Market Power.” April
2016. Available at:
https://www.whitehouse.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf
The George Washington University Regulatory Studies Center
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raising the standard of living for society; its benefits for consumers include more choices of
products at higher quality and lower prices. Competition can also lead to increased wages as
firms compete to attract and retain workers from the labor market.
The federal government has a long track record of issuing regulations that create barriers to
competition. While it was intended to curb natural monopolies, the economic regulation that
prevailed prior to the mid-1970s was the “principal cause” of monopolies in the
telecommunications and transportation sectors.4 Federal rulemaking has largely moved past the
prescriptive economic regulations of the last century—however, many social regulations still
have the side-effect of limiting competition by acting as barriers to entry or reducing the number
of product options available to consumers. Regardless of the motivation for regulating an
industry, there is a strong tendency for the details of regulation to reflect influence, and often the
interests, of the industry’s largest incumbents. Consumers’ interests (which are more likely to be
taken into account in an open, competitive marketplace) do not always get their due in the
regulatory process. This Insight suggests several areas of regulatory policy where federal
regulations have hindered, rather than helped, competition, and recommends that agencies take
this opportunity to reduce these regulatory barriers to competition.
Existing Opportunities to Enhance Competition
DOE’s Energy Efficiency Standards
EO 13725 instructs agencies to use their existing authorities to “arm consumers and workers with
the information they need to make informed choices, and eliminate regulations that restrict
competition without corresponding benefits to the American public.”5 The Department of
Energy’s (DOE’s) Energy Conservation Program could benefit from following this guidance.
Too often, the program uses product bans rather than better information to change consumer
behavior. These rules, which often have very high upfront costs, limit competition between
products and reduce choices available to consumers.
Before finalizing a new energy efficiency rule, DOE is required to consider “the impact of any
lessening of competition, as determined in writing by the Attorney General, that is likely to result
4 Susan E. Dudley. “President Obama’s Competition Executive Order Could Benefit from a History Lesson.” The
George Washington University Regulatory Studies Center. April 19, 2016. Available at:
https://regulatorystudies.columbian.gwu.edu/president-obama%E2%80%99s-competition-executive-order-could-
benefit-history-lesson 5 Executive Order 13725. “Steps to Increase Competition and Better Inform Consumers and Workers to Support
Continued Growth of the American Economy.” April 15, 2016. Available at: https://www.whitehouse.gov/the-
press-office/2016/04/15/executive-order-steps-increase-competition-and-better-inform-consumers
The George Washington University Regulatory Studies Center
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from the imposition of the standard.”6 This evaluation is conducted by the Antitrust Division
within the Department of Justice (DOJ).
However, even if the DOJ finds that an energy efficiency rule will be anti-competitive, DOE is
not necessarily bound by this determination. For example, DOJ found that DOE’s 2009
efficiency standards for lamps would have anti-competitive impacts on the incandescent reflector
lamps industry.7 However, DOE promulgated the standards despite DOJ’s warning that the
standards could adversely affect competition. This example illustrates two things: DOE’s rules
can have a significant effect on competition, and there is room for improvement in how DOE
structures its rules to avoid anti-competitive impacts.
Measuring the Effects on Competition: Retrospective Review
While DOJ’s prospective competition evaluation is issued before a rule goes into effect, it is also
important to measure anti-competitive effects after an energy efficiency rule is implemented to
determine the actual market response. The Energy Policy and Conservation Act, as amended by
the Energy Independence and Security Act, requires DOE every six years to review its standards
to determine whether they can be amended.8 This provides an ideal opportunity for DOE to
revisit the effects of its far-reaching standards on competition.
DOE may want to consult with DOJ in the process of evaluating its existing rules. As Sofie E.
Miller recommended in her comments to DOE,9 the Department should consider applying the
Herfindahl-Hirschman Index (HHI), which DOJ uses to evaluate the anti-competitive effects of
mergers, to measure concentration in the affected industries pre- and post-enforcement of the
standards in question.10
Recently, Batkins et al. employed this methodology to review market
concentration as a result of regulation in the health care, energy, airline, and telecommunication
sectors.11
In addition to affecting the number of firms competing in the market for appliances, these
standards limit competition in the number and type of product available to consumers.
6 42 U.S.C. 6295(o)(2)(B)(i)(V). http://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-
chap77-subchapIII-partA-sec6295.pdf 7 79 FR 24136
8 Energy Independence and Security Act of 2007. SEC. 305. IMPROVING SCHEDULE FOR STANDARDS
UPDATING AND CLARIFYING STATE AUTHORITY. https://www.gpo.gov/fdsys/pkg/PLAW-
110publ140/pdf/PLAW-110publ140.pdf 9 Sofie E. Miller. “Recommendations to DOE on Reducing Regulatory Burden.” The George Washington
University Regulatory Studies Center. July 17, 2014. Available at:
https://regulatorystudies.columbian.gwu.edu/recommendations-doe-reducing-regulatory-burden 10
“Herfindahl-Hirschman Index.” Antitrust Division: Public Documents: Merger Enforcement. U.S. Department of
Justice, n.d. Web. 27 June 2014. 11
Sam Batkins, Curtis Arndt, & Ben Gitis. “Market Concentration Grew During Obama Administration.” American
Action Forum. April 7, 2016. Available at: http://www.americanactionforum.org/research/market-concentration-
grew-obama-administration/
The George Washington University Regulatory Studies Center
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Compliance with DOE’s standards limits competition among firms for other product qualities
consumers value. As it plans for retrospective review of its efficiency regulations, DOE should
commit to measuring any anti-competitive effects, and to examining changes in the HHI upon
implementation of its standards. Understanding the regulations’ effects on market structure and
product choice will be important to understanding whether the rules achieve their stated
objectives, and the benefits and costs associated with implementation. This should inform the
public about any unintended anti-competitive effects of DOE’s energy efficiency standards, and
improve DOE’s analysis of future standards.12
Regulations Affecting International Trade and Investment
International trade increases the level of competition within an economy as domestic firms
compete with international rivals to provide goods and services to consumers. Unnecessary
differences in regulatory regimes and approaches between trade partners often act as technical
barriers to trade, reducing the benefits of competition.
Many of these differences are the result the unique mix of political judgements across countries
regarding how governments can best use regulations to protect the public. However, countries
have become increasingly engaged in international regulatory cooperation as a means of
avoiding costly and unnecessary differences in the treatment of goods across borders.
Cooperation can provide more information to regulators concerning existing international
standards and practices they may consider prior to issuing new regulations.13
President Obama signed Executive Order 13609 in an effort to improve the process of
international regulatory cooperation. It includes requirements for executive regulatory agencies
to “ensure that significant regulations that [each agency] identifies as having significant
international impacts are designated as such in the Unified Agenda of Federal Regulatory and
Deregulatory Actions…” The requirement to flag these rules is intended to expand public
participation during notice-and-comment periods by providing advanced notice to both foreign
and domestic audiences of regulations currently under consideration that are likely to affect
international trade and investment.
Improve Agency Performance in Flagging Rules
An analysis by Daniel R. Pérez estimates that agencies are, on average, identifying fewer than
30% of their rules in the Unified Agenda that are likely to have significant impacts on
12
Sofie E. Miller. “Recommendations to DOE on Reducing Regulatory Burden.” The George Washington
University Regulatory Studies Center. July 17, 2014. Available at:
https://regulatorystudies.columbian.gwu.edu/recommendations-doe-reducing-regulatory-burden 13
Pérez et al. US-EU Regulatory Cooperation: Lessons and Opportunities” The George Washington University
Regulatory Studies Center, April 26, 2016. Available at: https://regulatorystudies.columbian.gwu.edu/us-eu-
regulatory-cooperation-lessons-and-opportunities
The George Washington University Regulatory Studies Center
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international trade and investment.14
The results indicate that there is much room for
improvement in notifying trade partners and expanding stakeholder participation to improve the
outcomes of rulemaking and avoid the creation of unnecessary barriers to trade that result in
reduced competition.
EPA’s Renewable Fuel Standards
Regulations that dictate use of certain products at levels above consumer demand harm
consumers because they replace the natural competitive market process with one-size-fits-all
mandates that don’t represent consumer preferences. The Environmental Protection Agency’s
(EPA’s) Renewable Fuel Standards (RFS), which mandate the production and use of biofuels
like corn ethanol and biomass-based diesel, illustrate how federal regulations override
consumers’ preferences and impede competitive markets.
The RFS program requires refiners to blend specific amounts of renewable fuels into
transportation fuel, such as gasoline and diesel. The RFS program was created in 2005 to reduce
both American dependence on foreign oil and domestic gasoline consumption. To accomplish
these goals, EPA’s December 2015 final rule mandates the production of 18.11 billion gallons of
total renewable fuel in 2016, a 1.18 billion gallon increase from the last published standards
promulgated for 2013.15
There was some demand for biofuels such as corn ethanol prior to the creation of the RFS
program; however, because corn ethanol is a substitute for gasoline, demand for ethanol is
extremely responsive to the price of gasoline. When the RFS program was created in 2005,
ethanol was a relatively attractive substitute due to the high price of gas. But major drops in the
price of gasoline since 2008 put consumers at a disadvantage by requiring them to pay for a
substitute that costs more than the gasoline it is intended to displace. The below graph shows that
most, if not all, of current ethanol consumption is driven by harmful federal policies rather than
pure market demand and competition.
14
Daniel R. Pérez. “Identifying Regulations Affecting International Trade and Investment: Better Classification
Could Improve Regulatory Cooperation.” The George Washington University Regulatory Studies Center.
November 10, 2015. Available at: https://regulatorystudies.columbian.gwu.edu/identifying-regulations-affecting-
international-trade-and-investment-better-classification-could 15
Sofie E. Miller. “Oversight of the Renewable Fuel Standard.” Prepared statement for the record for the U.S.
Senate Environment and Public Works Committee Hearing ‘Oversight of the Renewable Fuel Standard.’ February
24. 2016. Available at: https://regulatorystudies.columbian.gwu.edu/oversight-renewable-fuel-standard
The George Washington University Regulatory Studies Center
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Author’s calculation based on the cross-price elasticities of gasoline and ethanol (Anderson 2010,
“The Demand for Ethanol as a Gasoline Substitute.” National Bureau of Economic Research:
Working Paper 16371.)
While these mandates are harmful to American consumers—and the environment16
—they are
highly profitable for the domestic soybean and corn industries, who can sell their crops at
inflated prices to produce uncompetitive biofuels. For example, EPA estimated that its 2012
biodiesel rule would raise the price of soybeans by 18 cents per bushel, which would have
yielded soybean farmers a $707 million increase in revenues in 2015 alone.17
The price of
soybean oil was also expected to rise by 3 cents per pound, adding up to a $1.2 billion increase in
revenues for soybean oil producers. While these benefits are concentrated to a specific few
groups, the costs are borne by all Americans who buy products incorporating soy, from soap to
beef.18
Advocates of biofuels like to justify these mandates by arguing that they are necessary to support
an infant industry in a competitive marketplace; however, biofuels have existed for over a
century, and their inability to gain a hold in the market has less to do with their “infant” status
and more to do with uncompetitive pricing and unattractive product features. “After a century,
the success of biofuels as a competitive fuel source should not depend on legislated mandates or
16
See, for example, the literature review on environmental impacts in Sofie Miller’s February 24, 2016 statement
for the record: https://regulatorystudies.columbian.gwu.edu/oversight-renewable-fuel-standard 17
Calculated using the USDA’s estimate of 3.93 billion bushels of soy produced in 2015.
http://www.usda.gov/nass/PUBS/TODAYRPT/cropan16.pdf 18
Sofie E. Miller, “Crony Environmentalism.” Regulation Magazine, Spring 2013.
0
2000
4000
6000
8000
10000
12000
14000
16000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Mil
lio
n G
all
on
s Portion of Ethanol Demand Due to
Government Policies
Actual High-End Low-End Elasticity
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costly subsidies. Rather than encouraging healthy competition, which provides incentives for
innovation and efficiency, the mandates encourage political rent-seeking, and harm the
environment, consumers and taxpayers in the process.”19
CAFE Standards for Trucks
Executive Order 12866, signed by President Clinton, directs agencies to analyze the benefits and
costs of regulations, and to try to maximize the excess of the former over the latter.20
It is a
sound principle, but it needs to be applied with an appropriate measure of humility. Regulators
may be tempted to think that they can use benefit-cost analysis to determine what is “best” for
the economy, and then simply mandate it. Industry incumbents may encourage this approach;
they are often willing to accept expensive regulation as long as it can be used to create barriers to
entry that protect them from competition. The collateral damage to competition and innovation
can easily turn an otherwise well-intentioned rule into an economic disaster.
The problem can be illustrated by looking at fuel-economy standards jointly proposed this year
by EPA and the Department of Transportation’s National Highway Traffic Safety Administration
(NHTSA), which will apply to companies that manufacture, sell, or import heavy duty trucks,
including tractor-trailer trucks.21
The proposed standards appear to have been developed in close
consultation with industry incumbents, and incorporate prescriptive requirements that are likely
to create barriers to entry. Rather than encouraging innovation, the standards are likely to make
innovation very difficult. Even the proposed exemptions for small manufacturers incorporate
production caps and grandfather features that appear to be designed to suppress new entry and
competition.22
EPA and NHTSA claim that, in the early years, the proposed standards can be achieved using
existing technologies. In later years, however, the standards are technology-forcing—that is, the
agencies assume innovations will be developed to allow the industry to comply with standards
that, today, are not technically achievable. Compliance with the standards will be determined
through a complex array of computer modeling plus on- and off-road testing. Because of the cost
and complexity of the testing, the standards will allow manufacturers to comply by installing
certain pre-certified technologies on their vehicles.
19
Susan E. Dudley. “Renewable Fuel Mandates Harm the Environment, Consumers, and Taxpayers.” The George
Washington University Regulatory Studies Center. March 26, 2013. Available at:
https://regulatorystudies.columbian.gwu.edu/sites/regulatorystudies.columbian.gwu.edu/files/downloads/Dudley_
biodiesel_03262013.pdf 20
Executive Order 12866. “Regulatory Planning and Review.” September 30, 1993. 21
“Greenhouse Gas Emissions and Fuel Efficiency Standards for Medium and Heavy-Duty Engines and Vehicles—
Phase 2; Proposed Rule.” Federal Register Vol. 80, No. 133, July 13, 2015 (Book 2 of 3 Books), pp. 40137–
40766. Available at: http://www3.epa.gov/otaq/climate/regs-heavy-duty.htm. 22
For more detailed commentary on the proposed standards, see Mannix’s Public Interest Comment, available
at: http://regulatorystudies.columbian.gwu.edu/public-interest-comment-epa-and-nhtsas-proposed-rule-
greenhouse-gas-emissions-and-fuel-efficiency.
The George Washington University Regulatory Studies Center
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As an example, consider cab-mounted fairings—the air deflectors mounted on top of the cabs of
tractors, in order to reduce the aerodynamic drag of the trailer in a tractor-trailer vehicle. These
are commonly used in the industry, but the proposed standards will not allow just any old
fairing. The Draft Regulatory Impact Analysis (RIA) goes into great detail23
on the advantages of
a particular thermoplastic fairing design, SABIC Roof Fairing Technology, that delivers just the
right combination of weight and aerodynamic performance. After 2018 it will be nearly
impossible to put a truck on the road that does not include one of these fairings, and it will be
illegal for any person to remove the fairing as long as the truck is in service.
Such regulatory specification of a particular technology can be especially damaging when the
technology is proprietary, because the law simultaneously locks out competitors and locks in
customers. In this case the two agencies worked closely with SABIC, the fairing’s manufacturer,
to develop the standards. It seems likely that SABIC will patent the mandated design: “Saudi
Arabia Basic Industries Corporation (SABIC) has passed the milestone of having more than
10,000 patents either issued or pending approval, making it the largest owner of intellectual
property in the Middle East.”24
EPA and NHTSA seem unconcerned about the danger to competition: “We are currently
coordinating with SABIC on future efforts to determine feasibility and capability of this concept
on additional areas of the tractor (e.g., bumper, hood, fuel tank/chassis skirt fairings, cab side
extenders).”25
The two agencies appear to be dramatically increasing our dependence on
proprietary intellectual property, even “as we take another big step to grow our economy and
reduce America’s dependence on foreign oil.”26
Curbing Innovation: Controlling Vehicle-to-Vehicle Communications
In 2014, NHTSA published an advanced notice of proposed rulemaking seeking public input on
the possibility of requiring new passenger cars and light trucks to be equipped with vehicle-to-
vehicle (V2V) communication technology.27
NHTSA predicted that adoption of V2V technology
across the vehicle fleet could lead to large benefits by preventing accidents that result in death,
injury, and property damage.28
However, NHTSA’s plan to regulate V2V technologies may come at the expense of innovations
that would have been developed through the competitive market process. As Gerald Brock and
23
Draft Regulatory Impact Analysis (RIA), p. 2-19. EPA-420-D-15-900, June 2015. Available
at: http://www3.epa.gov/otaq/climate/regs-heavy-duty.htm. 24
Arab News, “SABIC becomes region’s largest patent developer,” 13 June 2014. 25
RIA, p. 2-20. 26
Remarks by the President on Fuel Efficiency Standards for Medium and Heavy-Duty Vehicles, Feb. 18, 2014. 27
National Highway Traffic Safety Administration. “Federal Motor Vehicle Safety Standards: Vehicle-to-Vehicle
(V2V) Communications.” August 20, 2014. 79 FR 49270 28
79 FR 49270
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Lindsay M. Scherber note in their comment to NHTSA, car manufacturers are already exploring
many technologies that would accomplish the safety goals that NHTSA outlines, including V2V
communication capabilities, driverless cars, “Super Cruise” technologies, left-turn assist
capabilities, blind spot information systems, and automated brake support.29
By proposing a
universal V2V communication specification, NHTSA disregards major advancements that are
already being developed through competitive market processes; any mandated single technology
has the potential to override the gains to consumers of private sector innovation.
NHTSAs draft proposed rule on V2V communication technologies is currently under review at
OMB,30
and according to the Fall 2015 Unified Agenda, NHTSA plans to publish it this May.31
As the Agency moves forward with this proposal, it should bear in mind the success of other
innovated network technologies32
and avoid using a heavy hand to regulate. Doing so may forfeit
the consumer benefits that would come with the innovative technologies that competition in
private markets is already encouraging.
Resurgence of Economic Regulation
The first regulatory agencies in the United States, formed during the New Deal and earlier,
generally issued “economic regulations.”33
That is, they regulated a broad array of activities
within particular industries using economic controls such as price ceilings or floors, quantity
restrictions, and service parameters.34
By the early 1970s, scholarship in the fields of economics,
antitrust, and law generally supported the idea that this type of regulation tended to keep prices
29
Gerald Brock & Lindsay Scherber. “Public Interest Comment on the National Highway Traffic Safety
Administration’s Advance Notice of Proposed Rulemaking: Federal Motor Vehicle Safety Standards: Vehicle-to-
Vehicle (V2V) Communications.” The George Washington University Regulatory Studies Center. October 20,
2014. Available at:
https://regulatorystudies.columbian.gwu.edu/sites/regulatorystudies.columbian.gwu.edu/files/downloads/Brock-
Scherber-NHTSA-2014-0022.pdf 30
“Search of Regulatory Review.” Office of Information and Regulatory Affairs, Office of Management and
Budget, Executive Office of the President. Accessed May 4, 2016.
http://www.reginfo.gov/public/do/eoAdvancedSearchMain 31
“View Rule: Federal Motor Vehicle Safety Standard (FMVSS) 150—Vehicle to Vehicle (V2V) Communication.”
Office of Information and Regulatory Affairs, Office of Management and Budget, Executive Office of the
President. Accessed May 2, 2016.
http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201510&RIN=2127-AL55 32
Gerald Brock & Lindsay Scherber. “Public Interest Comment on the National Highway Traffic Safety
Administration’s Advance Notice of Proposed Rulemaking: Federal Motor Vehicle Safety Standards: Vehicle-to-
Vehicle (V2V) Communications.” The George Washington University Regulatory Studies Center. October 20,
2014. Available at:
https://regulatorystudies.columbian.gwu.edu/sites/regulatorystudies.columbian.gwu.edu/files/downloads/Brock-
Scherber-NHTSA-2014-0022.pdf 33
Susan E. Dudley. “Improving Regulatory Accountability: Lessons from the Past and Prospects for the Future.”
Case Western Reserve Law Review, Vol. 65 Issue 4. 2015. 34
See Murray L. Weidenbaum, Business and Government in the Global Marketplace 23–41 (6th ed. 1999)
(discussing the development and rationale of U.S. regulation).
The George Washington University Regulatory Studies Center
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higher than necessary, to the benefit of regulated industries, and at the expense of consumers.35
Policy entrepreneurs in the Ford, Carter, and Reagan Administrations, in Congress, and at think
tanks were able to link this knowledge to the problem of inflation by showing that eliminating
economic regulations and fostering competition would lead to reduced prices.36
Bipartisan efforts
across all three branches of government eventually led to the abolition of whole agencies such as
the Civil Aeronautics Board and the Interstate Commerce Commission, and removal of
unnecessary regulation in several previously regulated industries, with resulting improvements in
innovation and consumer welfare.37
The transportation and telecommunications deregulation that took place in the 1970s and 1980s
is generally regarded as a success, having lowered consumer prices and increased choices.
Deregulation and consumer choice have aligned service quality with customer preferences.
Competitive markets have generated real gains—and not just reallocated benefits—for
consumers and society as a whole, and markets have evolved in beneficial ways that were not
anticipated before deregulation.38
Recent years have seen a resurgence of the anti-competitive “economic regulation” that the U.S.
successfully abandoned almost 40 years ago. Regulations under the Affordable Care Act and
Dodd-Frank Act, for example, limit prices, control entry, and constrain service quality. The
Federal Communications Commission’s net neutrality rules39
and the Department of Labor’s
fiduciary rules may limit the arrangements that could emerge from competitive markets, and
harm innovation.40
The GW Regulatory Studies Center’s annual review of the budgets and staffing of regulatory
agencies indicates that those responsible for economic forms of regulation have grown at a faster
rate than social regulatory agencies in recent years. Based on data presented in the annual fiscal
35
George J. Stigler. “The Theory of Economic Regulation.” The Bell Journal of Economics and Management
Science, Vol. 2 Issue 1, 3 (1971). 36
Susan E. Dudley. “Alfred Kahn 1917–2010.” Regulation, Spring 2011, at 8. 37
Martha Derthick & Paul J. Quirk. The Politics of Deregulation 5 (1985); ICC Termination Act of 1995, Pub. L.
No. 104–88, § 101, 109 Stat. 803, 804 (1995). 38
Clifford Winston. “U.S. Industry Adjustment to Economic Deregulation.” 12 J. Econ. Persp., 89, 89–90, 97
(1998). 39
Gerald Brock. “Vague Net Neutrality Rule Impedes Innovation.” The George Washington University Regulatory
Studies Center. April 21, 2015. Available at: https://regulatorystudies.columbian.gwu.edu/vague-net-neutrality-
rule-impedes-innovation. Maureen K. Ohlhausen. “Net Neutrality vs. Net Reality: Why an Evidence-Based
Approach to Enforcement, and Not More Regulation, Could Protect Innovation on the Web.” 14 Engage J.
Federalist Society Practice Groups 81, 2013. Available at:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2670816 40
Singer & Litan’s analysis concludes that the rule will impose net costs “largely from (1) small savers losing access
to human financial advisors (because small accounts would become uneconomic to serve, and expose
advisory firms to new liability risks), (2) small savers being forced into fee-based advisory relationships that cost
more than current commission-based arrangements, and (3) small savers and firms not being encouraged to save
more, take full advantage of employer matches, or create retirement plans in the first place.”
http://www.ei.com/support-_proposed_fiduciary_rule-roposed-fiduciary_rule/
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budget presented to Congress, the reports estimate that over President Obama’s 8-year term (FY
2010 – FY 2017) the staff at these economic regulatory agencies increase by 30 percent, and
their outlays by 40 percent.41
Encouraging Competition in Labor Markets
In discussing competition, policymakers can tend to forget that labor is a good that also responds
to price signals and is affected by regulatory barriers to entry. Recent—and forthcoming—
administrative actions apply economic forms of regulation to labor markets. These merit
additional attention as agencies evaluate the effects of their rules on competition.
For example, President Obama’s executive orders 13673, 13658, and 13502 alter competition in
labor markets by restricting the contractors who can apply for federal procurement contracts,
establishing an hourly minimum wage for federal contractors, and prioritizing federal
procurement firms with project labor agreements, respectively. Agencies’ actions to implement
these executive orders will erect barriers to entry for both firms and individual workers.
Looking Ahead: Licensing Tax Preparers
Beyond the current regulatory frameworks being considered and implemented by regulatory
agencies, there are additional anti-competitive policies on the horizon that policymakers should
be aware of. Congress is currently considering a hurdle to competition in the Tax Return
Preparer Competency Act, which would require paid tax preparers to become licensed by the
Internal Revenue Service. The President’s latest budget suggests the administration does not plan
to wait for Congress to pass this bill however; it would grant the Treasury Department the
authority to regulate paid tax preparers.42
This development is especially disappointing given the findings of the President’s own Council
of Economic Advisers (CEA), which concluded in a July 2015 report that “the current
[occupational] licensing regime in the United States also creates substantial costs, and often the
requirements for obtaining a license are not in sync with the skills needed for the job. There is
evidence that licensing requirements raise the price of goods and services [and] restrict
employment opportunities.”43
41
Regulators’ Budget 2017, GW Regulatory Studies Center and Weidenbaum Center at Washington University.
forthcoming. 42
“Obama Budget Includes Tax Increases and Tax Preparer Regulation.” The Greater Washington Society of CPAs.
Accessed April 30, 2016. http://www.gwscpa.org/Content/news/Obama-Budget-Includes-Tax-Increases-and-Tax-
Preparer-Regulation.aspx 43
Department of the Treasury Office of Economic Policy, the Council of Economic Advisers, and the Department of
Labor. Occupational Licensing: A Framework for Policymakers. July 2015.
https://www.whitehouse.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf
The George Washington University Regulatory Studies Center
12
The President’s—and Congress’—push for additional occupational licensing won’t just hurt
independent tax preparers, it will also help the bottom lines of large tax preparing companies,
like H&R Block, which has been lobbying for additional licensing requirements.44
As the
President’s own CEA concluded, consumers suffer the most when competitors are pushed out of
the market by regulations that mandate registration and licensing.
Recommendations
Whatever their particular mission, regulators need to be mindful that competition is the most
important regulator of our economy. It is ubiquitous, ever vigilant, and ever faithful to the
interests of consumers. It constantly pursues both lower costs and higher quality in the goods and
services we produce and consume. At the same time, it is never rigid: it is always open to new
entry and to new ideas. It can be harsh, driving companies out of business without so much as a
hearing; but it does so only when something better is there to replace them. It works without a
queue for licenses, without an encyclopedia of rules, and without an army of inspectors.
Although several measures indicate that competition within the U.S. continues to decline, it is
worth noting that not all instances of firms increasing their market shares have detrimental
effects on the economy. Competition can result in firms that gain market share because they offer
products and services that consumers enjoy; this creates incentives for firms to innovate, offer
new products, and pursue gains in productivity that are conducive to long-term economic
growth.
While there are legitimate regulatory goals that require licenses and rules and inspectors,
regulators need to be very careful, in pursuing those goals, that they do not displace the
competition that governs the larger marketplace.45
To that end, in addressing competition via
regulation, agencies should use an open process that provides consumers, competitors, and
potential entrants with an opportunity to identify regulations that limit choice or erect barriers to
competition. Such a process would create an opportunity for real consumer gains through
increased choices and better information about products that serve the needs of consumers.
44
James Sherk. “This Company Wants to Make It Harder for You to File Taxes.” The Daily Signal. March 18, 2016.
Available at: http://dailysignal.com/2016/03/18/this-company-wants-to-make-it-harder-for-you-to-file-taxes/ 45
Brian Mannix. “The Tension between Optimization and Competition in Rulemaking: The Case of Proposed Fuel-
Efficiency Standards for Trucks.” The George Washington University Regulatory Studies Center. October 8,
2015. Available at: https://regulatorystudies.columbian.gwu.edu/tension-between-optimization-and-competition-
rulemaking-case-proposed-fuel-efficiency-standards